In the last two years, the world has experienced two big crises, a Pandemic, and a War, that hasn't happened in many decades at the same time. The world has changed drastically, we know how to manage without help in the house, WFH has brought a hybrid mode of working as it is cost-efficient for corporates, e-purchasing is the way we shop now, and children have adapted well with their online learning, and many such changes have become part of our life. This new style of living will now is the way forward for the rest of our life. Similarly, our outlook towards personal finance needs has also taken a drastic change, and if it hasn't been understood, it is high time one should relook at it now. Please take note of the following essential changes one should bring in their personal finance as it should be your guide to lead a comfortable life.

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SIP a vital tool for wealth accumulation: The industry witnessed a rush of stoppage of SIPs with the crash in the markets in March 2000. Everyone who panicked and thought they could time the market not only stopped their SIP but withdrew the accumulated amount too. In the last one year or so, a V shape recovery denied them to witness what wonder a SIP could show. A portion of your income should always go as SIP every month. It has a proven track record that the accumulation it gives is a trustworthy source of protection for the family in hard times

Don't wait to age to buy insurance: Many who were caught in insufficient insurance or without insurance got adversely affected financially. All such people had to eat lifelong savings and lost their bread earners, leaving families in despair. Both Term Plan and Health Policy are two wheels of a vehicle that won't bring smoothness to your life if one isn't in proper shape. Therefore, it would be prudent to get the correct value of insurance through term plans and new generation plans, including top-up plans to complete your insurance package.

High EMIs could be detrimental: Job loss, salary cuts, business disruptions, and many financial disruptions have affected cash flows for many. It has brought delays and defaults in repaying the EMIs, resulting in stress and crisis in the families. It is time to rethink the standard equation of up to 40% of income can go into EMIs. We all have experienced high inflation, cuts in salaries, and supply chain disruptions in businesses, making it advisable to keep lower EMIs for the family to face any crisis comfortably.

Equity is an important asset class for all age groups: In the last 25 years, ever since mutual funds came into existence; we all have seen equity as an asset class that outperforms any other asset. Consistent double-digit long-term returns give a scope of beating real inflation (not government-published inflation rate). It has also provided learning that asset allocation is a key for any goal achievement and equity plays a vital role in bringing desired accumulation. However, it is the wrong notion that equity is an appropriate Asset only for the young generation. It is advisable for all age categories to allocate some portion of the investments in equity depending on the risk and person's needs. Age-100 is a well-accepted principle that everyone should adopt. In a low-interest rates regime, one can get a kicker in the medium to long term through equity exposure.

High weightage to Financial Assets over Physical Assets: In the initial months of the Pandemic, the physical assets, especially properties, didn't come in handy to bring desired Liquidity to handle the adverse situation one had to face. Many are stuck with assets that aren't liquid, which have proved to be worthless as they couldn't bring respite when required the most. Residential flats haven't seen the right price, and rentals have been low, thus, it proved to be not only illiquid but also inefficient in returns. On the other hand, commercial properties struggled to find the right tenants as WFH has changed the business models across the Globe. In conclusion, the true net worth of any individual is that it comes to use when it is required the most, and it is not wise to be Asset rich and Liquidity poor.

We have assimilated a few learnings one should have understood the importance of managing their personal finance. Everyone could sit back to analyze the disruption it brought in their life due to the two years of crises. And one indeed learns with any adversity in life, and after world war two, the world experienced crises of such magnitude. We would like to amend our old practices that were not appropriate to face the eventualities in life.


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